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Allianz Annual Report 2012

discretionary participation features. Similarly, a significant portion of the ­­Allianz Group’s unit-linked contracts in France and Italy do not incorporate significant insurance risk. Asaresultoftheconsiderablediversityintypesofcontracts issued, including the offsetting effects of mortality risk and longevity risk inherent in a combined portfolio of life insur- ance and annuity products, and the geographic diversity of the ­Allianz Group’s Life/Health segment, as well as the sub- stantial level of policyholder participation in mortality/ morbidity risk in certain countries in Western Europe, the ­Allianz Group does not believe its Life/Health segment has any significant concentrations of insurance risk, nor does it believe its net income or shareholders’ equity is highly sensitive to insurance risk. The ­­Allianz Group’s Life/Health segment is exposed to sig- nificant investment risk as a result of guaranteed mini- mum interest rates included in most of its non-unit-linked contracts. The weighted average guaranteed minimum interest rates of the ­­Allianz Group’s largest operating enti- ties in the Life/Health segment (comprising 87 % of non- unit-linked reserves in both 2012 and 2011) can be summa- rized by country as follows: The majority of the ­Allianz Group’s Life/Health segment operations are conducted in Western Europe. Insurance laws and regulations in Western Europe have historically been characterized by legal or contractual minimum par- ticipation of contract holders in the profits of the insurance company issuing the contract. In particular, Germany, Switzerland and Austria, which comprise approximately 49 % (2011: 48 %) of the ­Allianz Group’s reserves for insurance and investment contracts as of 31 December 2012, include a substantial level of policyholder participation in all sourc- es of profit including mortality/morbidity, investment and expense. As a result of this policyholder participation, the ­­­Allianz Group’s exposure to insurance, investment and ex- pense risk is mitigated. Furthermore, all of the ­Allianz Group’s annuity policies is- sued in the United States meet the criteria for classification as insurance contracts under IFRS 4, because they include options for contract holders to elect a life-contingent annu- ity. These contracts currently do not expose the ­Allianz Group to significant longevity risk, nor are they expected to do so in the future, as the projected and observed annuiti- zation rates are very low. Additionally, many of the ­Allianz Group’s traditional contracts issued in France and Italy do not incorporate significant insurance risk, although they are accounted for as insurance contracts because of their weighted average guaranteed minimum interest rates D 087 as of 31 December 2012 2011 Guaranteed rate Non-unit- linked reserves % of non- unit-linked reserves Guaranteed rate Non-unit- linked reserves % of non- unit-linked reserves % € bn % % € bn % Germany Life 3.1 138.9 97.7 3.2 133.3 98.0 France 0.7 52.1 79.2 1.0 50.6 80.7 Italy 1 2.5 27.0 60.0 2.5 26.2 60.1 United States 1.3 54.9 73.8 1.4 55.5 77.8 Switzerland 2.2 9.7 92.5 2.0 9.3 92.8 South Korea 4.7 8.6 90.4 4.8 7.7 91.1 Belgium 3.4 7.6 96.7 3.6 7.6 87.0 1 Excludes for 2011 L’Assicuratrice Italiana Vita S.p.A. (€ 283 mn of non-unit-linked reserves). In most of these markets, the effective interest rates earned on the investment portfolio exceed these guaranteed min- imum interest rates. In addition, the operations in these markets may also have significant mortality and expense margins. As a result, as of 31 December 2012 and 2011, the ­­­Allianz Group does not believe that it is exposed to a sig- nificant risk of premium deficiencies in its Life/Health seg- ment. However, the ­Allianz Group’s Life/Health operations in Switzerland, Belgium, South Korea and Taiwan have high guaranteed minimum interest rates on older contracts in their portfolios and, as a result, may be sensitive to declines in investment rates or a prolonged low interest rate environment. Annual Report 2012    Allianz Group D Consolidated Financial Statements 219 Consolidated Balance Sheets 220 Consolidated Income Statements 221 Consolidated Statements of Comprehensive Income 222 Consolidated Statements of Changes in Equity 223 Consolidated Statements of Cash Flows 226 Notes to the Consolidated Financial Statements 303